Cairns Lockie Mortgage Commentary

Cairns Lockie Mortgage Commentary

Issue 2008 / 11   4 July 2008

Welcome to the eleventh fortnightly Cairns Lockie Mortgage Commentary for 2008.  We aim to keep you informed on developments at Cairns Lockie, Home Loans and the mortgage market in general.  Previous issues of this commentary can be found on our website http://www.emortgage.co.nz/newsletters.htm

The Money Market

This morning (8 am on 4 July 2008) the money markets were at the following levels:

Official cash rate    8.25% (unchanged)

90 day bill rate       8.63 (down from 8.66)

1 year swap rate    8.20 (down from 8.25)

3 year swap rate    7.69 (up from 7.68)

10 year bond rate   6.34 (down from 6.40)

Kiwi dollar             0.7600 (down from 0.7625)

Rentals over the Past Ten Years

In their latest June market report, Crockers, an Auckland based property management group discuss rental growth on residential dwellings over the past ten years.  As most home owners are aware, residential properties nationwide have increased on average by around 100% over this period. However rents have not risen by the same amount. Over the ten year period, Auckland rentals on a standard three bedroom dwelling have risen by 42%. Ironically the further south you go, the higher the rental growth. In Wellington this was 45%, Christchurch 54% and Dunedin 49%. While houses are now taking longer to sell, and prices are weaker, real estate agents are reporting that rental levels are firm and on average rentals are higher than a year ago.

Building Consents Decline

During May, 1,645 new dwelling consents were approved, well down on 2,853 for April. New dwelling consents have been declining for over a year now. Note that these are approvals only.  The dwellings, particularly apartments, may not actually be built, if the developers are unable to source finance. One of the areas that finance companies did specialise in, was lending on apartment developments. These are becoming more difficult to finance. Most finance companies have stopped lending altogether or those that are still lending have become a lot more restrictive and are generally lending smaller amounts and are demanding more security. In the immediate future this is unlikely to change.

Interest Rates

Fixed rate mortgages are jumping around 10 -20 points - some weeks they pop up, other times they decrease, depending on the movements in the swap rates. Floating rate mortgages will only move when the official cash rate changes. Market commentators are predicting that September is the likely month when this may occur. Given the continued slowing of the economy we think this may happen even earlier. Inflationary pressure is one of the factors that is keeping the Governor from cutting rates earlier. It was pleasing to see last week in Australia, which also has an inflation issue, the Reserve Bank kept their rates unchanged when some commentators thought they may actually rise.

Bridging Finance

We have reintroduced our bridging product.  This a true bridging loan where the servicing is calculated on the end position only. This mortgage recognises that for a short period of time, the borrower will be holding two properties with the firm intention of selling one of them.  During the bridging period the borrower is unlikely to be able to service both mortgages. We will be looking at lending up to 80% of the values of the properties being offered as security. We are able to capitalise the interest for up to twelve months. The capitalised portion is included into the 80% exposure. This is an ideal product for someone who has found their ideal property and is intending to sell their existing one.    

Our current mortgage interest rates are as follows:

Variable rate                             10.65%

Lo Doc Home Loan                   11.55 

Jumbo Loan                             10.65

One-year fixed rate                   9.78

Two-year fixed rate                    9.44

Three-year fixed rate                 9.54

Five-year fixed rate                    9.79

Line of credit facility                  10.75

ends

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